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GPIF, World Bank to study extending ESG approach to bond investments

World Bank President Jim Yong Kim says the groups’ initiative aims to ‘transform the way asset owners and managers see investment opportunities.’

Japan’s Government Pension Investment Fund and the World Bank Group pledged to partner on research aimed at extending the application of environmental, social and governance criteria to fixed-income investments and other asset segments.

A GPIF news release Wednesday said a number of issues need to be resolved before ESG factors can be applied to bond investments the way they’ve come to be taken into account for equity investments.

Jim Yong Kim, president of the World Bank Group, said in a separate news release that the two organizations “are embarking on an ambitious initiative to transform the way asset owners and managers see investment opportunities.”

The goal of sustainable development will demand “a much bigger contribution from the private sector,” said Mr. Kim. Calling GPIF a “world leader in sustainable investing,” Mr. Kim said his organization’s joint work with the pension fund to apply ESG criteria to other asset classes could lead to better investments, and a global market system that works “for everyone.”

A spokeswoman for Tokyo-based GPIF, the world’s largest pension fund with $1.3 trillion in assets as of June 30, said in an email that the joint effort is likely to continue through March 2018.

While the World Bank likely has greater resources at its disposal, GPIF will contribute its own research staff — as a long-term investor — and possibly draw other big pension funds and sovereign wealth funds to the table through the Global Asset Owners’ Forum it launched in mid-2016, with the participation of prominent investors such as the $337.2 billion California Public Employees’ Retirement System and $213.7 billion California State Teachers’ Retirement System, she said.

The GPIF announcement said bonds would be the first focus of joint study, with the goal of promoting “benchmarks, guidelines, rating methodologies, disclosure frameworks, reporting templates and risk analysis” for consideration of ESG-related criteria.

The GPIF spokeswoman said the results of the joint research will be announced to the public sometime after March.

In July, GPIF allocated an initial 3% of its domestic equity portfolio, or a 1 trillion yen ($8.9 billion), to three ESG-focused indexes, and pledged to boost its passive exposure, as well as begin applying ESG-related criteria to its active investments as well, in the future.